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- July 20, 2021 at 8:56 pm #628948
Hi Sir,
Why in the following question they consider the research and development as an expense and to be written down to profit and loss ? why not as a part of the cost of the machine developed?
Thanks,
Artem Co began a research project in October 20X3 with the aim of developing a new type of machine. If
successful, Artem Co will manufacture the machines and sell them to customers as well as using them in their own
production processes. During the year ended 30 June 20X4, costs of $25,000 were incurred on conducting
feasibility studies and some market research. During the year ended 30 June 20X5, a further $80,000 was incurred
on constructing and testing a prototype of the machineIn accordance with IAS 38 Intangible Assets, what is the correct treatment of the $25,000 costs incurred on
the research project by Artem Co during the year ended 30 June 20X4?
A They should be recognised as an intangible non-current asset as future economic benefits are
expected from the use and sale of the machinery.
B They should be written off to profit or loss as an expense as they are research costs at this date.
C They should be included in tangible non-current assets as machinery which will be put into use once B They should be written off to profit or loss as an expense as they are research costs at this date.
completed.
D They should be set against a provision made for the estimated total cost of the project which was set
up at the start of the research.Answer
B They should be written off to profit or loss as an expense as they are research costs at this date.July 22, 2021 at 11:51 am #629101Hi,
Research costs are expensed as there is no possibility just yet that we will generate any economic benefit and so they cannot be capitalised.
Thanks
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